Objective

To determine whether the costs reported by League Treatment Center (LTC) on its Consolidated Fiscal Reports (CFR) were reasonable, necessary, directly related to the special education programs, and sufficiently documented pursuant to the State Education Department’s (SED) Reimbursable Cost Manual (RCM) and the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual). The audit focused primarily on expenses claimed on LTC’s CFR for the fiscal year ended June 30, 2015 and certain expenses claimed on its CFRs for the two fiscal years ended June 30, 2014.

About the Program

LTC is a New York City-based not-for-profit organization authorized by SED to provide preschool special education services to children with disabilities who are between the ages of three and five years. During our audit period, LTC operated preschool special education full-day Special Class and full-day Special Class in an Integrated Setting programs. For the purposes of this report, these programs are referred to as the SED preschool cost-based programs. LTC also operated two other SED-approved preschool special education programs: Evaluations and 1:1 Aides. Payments for services provided by these programs are based on fixed fees. In addition, LTC operated several other programs, including an SED-approved school-age special education program as well as programs authorized and funded by the Office of Mental Health and the Office for People With Developmental Disabilities.

During the period July 1, 2013 through June 30, 2015, LTC served an average of 163 students in its cost-based programs. The New York City Department of Education (DOE) refers students to LTC and pays for its services using rates established by SED. The rates are based on the financial information LTC reports to SED on its annual CFRs. SED reimburses the DOE 59.5 percent of the statutory rate it pays to LTC. For the three fiscal years ended June 30, 2015, LTC reported approximately $21.4 million in reimbursable costs for its SED preschool cost-based programs.

Key Findings

For the three fiscal years ended June 30, 2015, we identified $3,759,935 in reported costs that did not comply with the requirements in the RCM and the CFR Manual, including:

• $2,779,515 in compensation for 53 employees whose services were incorrectly allocated to the cost-based programs;
• $324,603 in excessive executive compensation;
• $296,057 in unsupported compensation;
• $239,222 in ineligible consultant costs;
• $102,559 in unsupported other than personal service costs;
• $9,089 in other ineligible other than personal service costs; and
• $8,890 in inequitable pension contributions.

Key Recommendations

To SED:

• Review the recommended disallowances resulting from our audit and make the appropriate adjustments to LTC’s CFRs and tuition reimbursement rates, as warranted.
• Work with LTC to strengthen its internal controls to ensure compliance with the RCM and CFR Manual.

To LTC:

• Ensure that all costs reported on future CFRs comply with SED’s reimbursement requirements.